College admissions letters are rolling in to many students across the country, and financial aid offers will be right behind them. These offers – often referred to as award letters – should spark conversations about college affordability between students, families, and the professionals who help them along their postsecondary pathways. Here are few critical things that students and families need to know about financial aid offers.
For all of the excitement they bring, financial aid offers have a reputation for being a bit confusing. In 2018, the think tank New America and NCAN member uAspire analyzed over 500 financial aid award letters. Their research found that many of the letters used jargon, omitted the complete cost of attendance, and left students without clear next steps.
But with the right information, analyzing and comparing financial aid offers from colleges and universities is a process students and families can feasibly tackle.
Award letters’ basic components are the same. They generally include the details of the types of financial aid an institution is offering and an estimated cost of attendance. With that information, students can find the price they will actually have to pay, the “net price.”
Broadly, there are four types of aid: scholarships, federal and state grants, work-study, and loans.
● Scholarships do not have to be repaid. Students should pay attention to whether or not scholarships have yearly requirements, such as maintaining a certain GPA. It is also crucial to know if each scholarship is a one-time award or if it is recurring.
● Federal and state grants also do not have to be repaid. These include grants like the Pell Grant, the Federal Supplemental Educational Opportunity Grant (FSEOG), and state-specific grants. Eligibility is typically determined by the information students submit on their Free Application for Federal Student Aid (FAFSA). Students who receive these grants will have to fill out the FAFSA every academic year to maintain their eligibility.
● Federal work-study is money that the student earns. These funds might be included in the financial aid offer as just another grant, but work-study dollars are actually earned through part-time employment on- or off-campus. The student will have to apply for work-study positions, and work-study aid is not guaranteed from year to year. Read this great post from the Department of Education to learn more about all that work-study entails.
● Loans have to be repaid with interest. They are either subsidized or unsubsidized. For direct subsidized loans, the U.S. Department of Education pays the interest on these loans while the student is in school and for the six months after they leave school. For direct unsubsidized loans, interest begins accumulating while in school, and the student is responsible for this interest.
When talking to students about loans, stress to them to only take out as much as they need— it’s not necessarily best to take all that is offered. For example, if the student only needs $5,000 for food and housing, but $7,500 is offered, they should only take $5,000. Students may be tempted to have the extra money in college, but they should know that they will eventually have to pay back those loans with interest, which will be far more expensive in the long run.
The award letter should show the itemized offers for the fall, the spring, and their total for the academic year. Encourage students to ask themselves these questions when reviewing offers:
● Will I automatically receive this aid each year?
● What are the eligibility requirements to continue receiving recurring awards?
● When do I have to accept or decline these award offers?
● If loans are offered, do I want to accept them?
Once students have added up how much money a college is offering, they should compare that against the included cost of attendance estimate.
Total Cost of Attendance = Direct Costs + Indirect Costs
● Direct costs: These are charged to the student by the university and often include tuition, room and board, and fees. This is an estimate of what the student will owe the university.
● Indirect costs: These are the student’s estimated expenses such as books and supplies, travel, and other personal expenses. Actual year-to-year costs will vary. For instance, the student may choose a less expensive housing option or might have higher travel expenses.
Once students know the financial aid offers and the costs of attendance, it’s time to find the net price if it was not included already. In New America and uAspire’s study on award letters, only 40% included a net price – the remaining out-of-pocket costs.
To calculate the net price, subtract the student’s financial aid total from cost of attendance. This is the amount that the student will actually be responsible for. A few ways to close these gaps include paying with savings or taking out additional loans.
Luckily, there are wonderful resources out there to help students and families crunch the numbers and weigh all of their options. Check out these free tools:
If, at the end of their calculations, a student finds that their financial aid is still lacking, they might consider writing a financial aid appeal letter to ask the school to potentially grant more scholarships or loan and grant options. SwiftStudent is a great resource which helps students through this process.
When deciding where to enroll, the bottom dollar is not the only thing to consider. Encourage students to research potential schools’ graduation and retention rates, along with how their net price stacks up against other students’. The Department of Education’s College Scorecard is a wonderful resource to make those comparisons.
If students and families feel that they’ve hit a wall, encourage them to reach out to a college’s office of financial aid to get answers.
Running the numbers, doing the research, and comparing schools is not the most exciting work, but it is well worth the excitement that accompanies the final product: making a decision about the future that students and their families can feel good about.